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Insight Alert: Enforcing Lease Obligations During the COVID-19 Outbreak

April 1, 2020 CGS3 Coronavirus/COVID-19

As part of California’s response to the coronavirus (COVID-19) pandemic, on March 19, 2020, California Governor Gavin Newsom issued an executive order requiring everyone in California to stay in their homes.  This follows his March 16thdirective calling for the closure (or diminished operation) of businesses including restaurants, bars, night clubs, gyms, and movie theaters, and his executive order allowing California municipalities to impose moratoriums on evictions of residential and commercial tenants.  Consequently, landlords are reasonable to be concerned about the enforceability of lease obligations for the duration of the crisis.

CGS3 has created a COVID-19 task force comprised of tax, transactional and litigation attorneys that is actively monitoring the rapidly developing situation, and will continue to provide you with the updates necessary to protect you and your business during these uncertain times.

Are commercial unlawful detainer actions still available as a remedy to evict non-paying tenants?

  • Yes – there is presently no state-wide moratorium against unlawful detainer actions. Governor Newsom’s executive order delegated authority to each municipality in California to limit both residential and commercial evictions until May 31, 2020, as each municipality sees fit, with a single important limitation:unlawful detainers can only be restricted where the basis for eviction is nonpayment of rent arising out of a “substantial decrease in business income caused by a reduction in opening hours or consumer demand . . . caused by the COVID-19 pandemic, or by any local, state, or federal government response to COVID-19, and is documented.”
  • In other words, municipalities cannotlegally restrict unlawful detainer filings that arise from non-monetary defaults, or monetary defaults that are unrelated to the COVID-19 pandemic. Tenants must be able to “document” that their monetary default is related to COVID-19. That said, the possibility remains that municipalities and courts may improperly implement Governor Newsom’s executive order by imposing overly broad moratoriums on unlawful detainer proceedings.
  • At this time, numerous cities, including San Diego and Los Angeles, have set in motion the enactment of temporary bans on residential and commercial evictions. A moratorium has already taken effect in San Francisco until April 13, 2020, and is subject to further extensions. Landlords should actively   seek updates regarding moratoriums enacted in municipalities where they own real property.
  • In addition to moratoriums, other obstacles to eviction of non-paying tenants have been posed by state-wide court closures. Even in municipalities where no moratoriums are in effect, landlords are presently unable to file unlawful detainer proceedings (or any other proceeding) because courts are closed for purposes of non-emergencies until the beginning of April, at the earliest. We anticipate that court closures may be extended and are likely to affect the legal landscape beyond eviction proceedings. For example, San Diego courts have stated that they are unavailable to hear civil restraining orders.  Until the courts reopen, landlords should take the steps identified below to protect their interests.

Do tenants remain liable for rent if COVID-19 has affected their business?

  • Generally, yes – Governor Newsom’s executive order clarifies that tenants remain obligated to pay rent, and that no municipalities may impose restrictions on a landlord’s ability to recover rent due. That said, force majeure clauses within leases and legal doctrines (g., “frustration of purpose”) may limit tenants’ rent obligations.
  • We encourage all landlords to undertake a review of their leases and of course, we are happy to assist in that process.

What should landlords do if a commercial tenant stops paying rent?

  • Landlords may, at this time, continue imposing late fees and interest on late payments of rent.
  • Landlords should continue serving notices of default and charging associated legal fees to tenants (to the extent authorized by lease). Landlords may want to add language to their standard notices to address the COVID-19 pandemic (g., “If tenant’s business operations have been affected by the COVID-19 pandemic, please contact landlord immediately to discuss tenant’s options.”).
  • When accepting tenants’ partial payments of rent, landlords should send written correspondence indicating that they accept such partial payments without waiving any legal or equitable rights, including the right to later recover the balance of unpaid rent.
  • Landlords should consider providing rent relief to those tenants most severely impacted by COVID-19. Maintaining positive tenant relationships will help landlords best adapt to the rapidly changing legal landscape.

Please contact us should you need assistance navigating these unprecedented changes in the commercial real estate industry. CGS3 is ready to assist you in developing a comprehensive and proactive approach in responding to tenant inquiries and requests for relief and other COVID-19 related management strategies.

CGS3 Insight Alerts are curated with you in mind.  They deliver focused, relevant, and timely information on trending topics to our clients, colleagues, and others in the industry.  Please note that they are intended for general informational purposes only, and should not be construed as legal advice for any specific situation. Always remember to contact an attorney to obtain advice with respect to a particular issue or problem.